Fiscal board strikes deal with fuel line lenders that will add charges to power bill
By The Star Staff
The Financial Oversight and Management Board reached a settlement with holders of about $700 million in fuel line loans to the Puerto Rico Electric Power Authority (PREPA) that will be paid through a hybrid charge consisting of a flat connection fee and a volumetric charge to be added to customers’ electricity bills.
The settlement, the oversight board said, represents a significant step toward a plan of adjustment for PREPA’s debt this week and an end to PREPA’s bankruptcy case under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA).
On Thursday, the oversight board must turn in a debt adjustment plan (PAD by its Spanish acronym) for PREPA after federal Judge Laura Taylor Swain authorized a one-week delay last week. Under PROMESA, a debt adjustment plan containing more than one impaired class with one class accepting, or no impaired accepting class in a single-class plan, can be confirmed under section 1129(b) without acceptance of other classes. Back in early November oversight board lawyers stated that Vitol, one of PREPA’s claimants, had agreed to accept 50% of the ultimate recovery percentage for the general unsecured claims class. The board said Vitol would be placed in its own class, which will receive such separate treatment, and Vitol will vote in favor of the plan, creating an impaired accepting class.
The announcement of the deal with the fuel line lenders came after the mediators overseeing negotiations to restructure bankrupt PREPA’s debt informed the federal court late last week that the oversight board had not submitted data relevant to the negotiations and asked for an extension of the original Dec. 1 deadline to submit the PAD for the power utility.
The agreement with the fuel line lenders would reduce their claim by 16% through newly issued PREPA bonds upon the effective date of the PAD. The amount and structure of the proposed hybrid charge to be used to pay the fuel line lenders have not been finalized and would be determined by the PAD.
“The Fuel Line Lenders provided PREPA with critical funding to buy fuel and have come to the table as a separate creditor group to reach an affordable deal that will help resolve PREPA’s bankruptcy,” the oversight board’s chairman, David Skeel, said in a statement late last week. “With the support of the Fuel Line Lenders we will continue to negotiate with other creditors to reach a Plan of Adjustment that would allow PREPA to move on and continue to transform into a modern and reliable energy system. This is a big step toward getting PREPA out of bankruptcy.”
The new bonds would carry 6% interest and be tax-exempt. The principal to be paid on the bonds issued to the fuel line lenders would have priority over principal payments to be paid on other bonds to be issued under the plan described in the agreement. In addition, fuel line lenders would receive $15 million in consummation costs and up to $11 million in reimbursement of professional fees.
Following the announcement of the deal with the fuel line lenders, Popular Democratic Party (PDP) Secretary General Luis Vega Ramos denounced it as confirmation of a “conspiracy of silence between Governor Pedro Pierluisi and the Fiscal Control Board” to impose two new increases in energy customers’ bills.
“Governor Pierluisi lied to Puerto Ricans when he secretly negotiated a new illegal contract with LUMA that includes an increase in their profits based on rising inflation,” the PDP official said. “Undoubtedly, that will have to be paid by the people who will continue to suffer with the same mediocre service under LUMA. This new contract also had the approval, in writing, of the Fiscal Board. Now we find out that while Pierluisi and the [oversight board] gave this new blow to the country, another increase was also secretly negotiated to pay some PREPA bondholders. Two increases in the utility bill are announced in one week.”